Contingency Assessment Based on Cost and Schedule Planning

SUMMARY & CONCLUSIONS Contingency represents an estimate of the management reserves for cost, schedule, and other resources needed to complete a project. Schedule and cost estimates have three common components that contribute to differences between planned requirements and actual performance. They include: •Variation inherent in the estimating procedures used •Changes in scope •External events that impact performance Cost estimates also vary due to changes in prices over time. This is commonly called escalation or inflation. Commonly, escalation varies based on the particular commodity being used and indices like the PPI are generally only rough guides. It is possible to estimate the magnitude of these differences, and to include allowances for them even while a project is being planned. It is also possible to update these estimates over the life of a project to project estimated resource needs to completion. This paper will describe a three component model for schedule contingency estimation and a four component model for cost. Examples are included to illustrate each component as well as the updating process to illustrate how this model can be used to support a learning approach to managing contingency.